5 Stocks Under $10 Poised for Upside

Discovery Laboratories

Another under-$10 stock that just started to breakout on Thursday is Discovery Laboratories (DSCO), a biotechnology company developing surfactant therapies to treat respiratory disorders and diseases. This stock has been in beast-mode for most of 2012, with shares up over 80% so far.

If you take a look at the chart for Discovery Laboratories, you'll notice that this stock made a parabolic move higher in March from around $3.35 to a high of $5.39 in just two trading sessions. Following that monster spike, shares of Discovery Laboratories have been sold off hard to a recent low of $2.37 a share. That selloff took DSCO back below its 50-day moving average, but the stock has been able to hold above its 200-day moving average. On Thursday, DSCO pushed back above its 50-day moving average of $2.97, and more important, it moved back above its March gap-down day high of $2.95 a share.

Market players should now look to play this breakout back above the 50-day for DSCO and look to play the potential of that March gap getting filled. Traders should consider long-biased trades as long as DSCO is trending above its 50-day moving average of $2.97 with strong upside volume flows. I would consider upside volume that's near or well above its three-month average action of 2,003,510 shares as bullish. Volume on Thursday finished at 1.42 million shares with the stock up 3.3% to $3.05 a share. That volume was decent, so look for continued momentum on Friday with a bit better upside volume flows.

Some potential targets to the upside for DSCO if this breakout holds, are the next significant overhead resistance levels at $3.73 to just above $4 a share. If DSCO were to then take out those levels with heavy volume, then it's possible it could make a run at that March high of $5.39 a share. I would simply avoid any long trades in DSCO if it moves back below its 50-day with heavy volume.

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